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Cases & Deals

Case update

Informal Assent to a Company’s Transaction - The ‘Duomatic’ Principle
June 2024

On 7.6.2024, we successfully resisted an Originating Summons filed by the liquidator of a company wound up in 2017 to recover from the director 15 units of properties transferred by the shareholders in 2013.

The Liquidator’s argument is premised on the basis that the transfers were not approved via a general meeting or a written resolution hence in contravention of s 228 of the Companies Act 2016. However, we argued that despite there being no meeting or resolution - the transfers were made pursuant to not 1 but 2 letters approving the transfers signed off by all shareholders of the company.

Transactions within and by a company is not defined nor confined by the restrictions set by the Plaintiff’s Liquidator in that they can only be legitimized by a single provision that is s 228 of CA2016. These limitations propounded by the Liquidator of the Plaintiff runs afoul of equity and jurisprudence. Equity and the jurisprudence affirm substance over form wherein it recognises scenarios of honest and intravires transactions despite them not being inked over a piece of paper (resolution).

What comes to mind is the locus classicus of In re Duomatic Ltd [1969] 2 Ch 365, which gave birth to the ‘Duomatic’ principle.

 

The Duomatic principle in essence is the principle that anything the members of a company can do – provided it is done in unanimous and actual knowledge of the company – by formal resolution in a general meeting, they can also do informally if all of them assent to it. The Court will not interfere on the ground that there was neither a meeting held nor a resolution passed. Rather, this rule protects parties from others who try to go against what has already been assented to.

The Liquidator tried to argue that Duomatic principle does not apply in cases of insolvency. However, there is no evidence of insolvency at the time of the transactions - we have to be mindful that it is not insolvency during the winding up. And when there is no insolvency, shareholders interests takes precedence over interests of the creditors. (See Kinsela & Anor v Russell Kinsela Pty Ltd (1986) 10 ACKE 395). Also, insolvency trading or fraudulent trading is not the Liquidator’s case before the Court. As such, the only answer to the Liquidator’s question of s 228 lies in Duomatic principle. This puts paid to the issue before us.

The High Court of Kuala Lumpur found favour in our argument and dismissed the Liquidator’s action with costs.

 

Our partner Dennis Yuean Jin Han appeared for the 1st - 4th Defendants.

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